Commercial expediency and business loss treatment support deduction of write-off for support advances to a subsidiary.

Amounts advanced in the ordinary course of business to support a wholly owned overseas subsidiary were treated as deductible business loss or revenue expenditure when the venture was discontinued and the write-off was non-capital in nature. The analysis turned on commercial expediency: the subsidiary was set up to further the assessee's business interests and sourced goods exclusively from the assessee, so the advances formed part of the assessee's business operations. The recipient's treatment of the funds as capital or quasi-equity did not determine deductibility in the assessee's hands. On that reasoning, the disallowance was unsustainable and the write-off was allowable.

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Issues: Whether the amount advanced by the assessee to its wholly owned subsidiary and written off on discontinuance of the overseas business was allowable as a business loss or revenue expenditure under the Act.

Analysis: The advances were made to support the assessee's foreign subsidiary, which was set up to further the assessee's business interests and was purchasing goods exclusively from the assessee. The arrangement was part of the assessee's business operations and commercial expediency, and the fact that the recipient may have treated the funds as capital or quasi-equity did not control the allowability in the hands of the assessee. The Court relied on the distinction between capital loss and revenue loss and on the principle that non-capital expenditure incurred for business purposes is deductible as business loss or expenditure.

Conclusion: The write-off was allowable as a business loss or revenue expenditure; the disallowance was not sustainable and was rightly deleted.

Ratio Decidendi: Amounts advanced in the ordinary course of business for running or supporting a business venture are deductible as business loss or business expenditure when they are non-capital in nature and incurred for commercial expediency, regardless of how the recipient treats the funds.

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